First Business Survey: Business optimism continues into 2019

The survey, taken this fall, found that 2018 was the fifth consecutive strong year in terms of sales revenue and profitability, and that three quarters of the respondents expect overall business performance to further improve in 2019, while only 7% expect a decline.

By Joe Vanden Plas

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Despite gathering national and international economic headwinds, Greater Madison employers remain optimistic about their business prospects for 2019, according to the 16th annual First Business economic survey.

Survey results will be presented today during the annual First Business Economic Forum, and they reveal that optimistic expectations for 2018 were not only met, but they will carry into 2019. The survey, taken this fall, found that 2018 was the fifth consecutive strong year in terms of sales revenue and profitability, and that three quarters of the respondents expect overall business performance to further improve in 2019, while only 7 percent expect a decline.

The 2018 First Business Bank Economic Survey was completed by 282 respondents in three regions in Wisconsin, with 134 coming from Dane County. It was distributed electronically to business decision makers — including owners, chief executive officers, and chief financial officers — and was completed over a period of six weeks, from mid-September to early November 2018.

Dr. Moses Altsech, who conducted the annual survey, notes the overall economic picture in Dane County has been outstanding for several years now. “Things look very optimistic in the survey,” states Altsech, who serves on the faculty of the Wisconsin School of Business at the University of Wisconsin–Madison and as the president of Moses Altsech Consulting LLC. “In fact, it’s one of many years in a row where optimism is strong.”

The timing of the survey was such that most responses had come in before the mid-term election results, Altsech adds, and more recent stock market volatility could make people wonder whether 2019 optimism is premature. However, that upbeat mood is consistent “with other economic indicators around the country, so the results of the survey and the optimism is very well aligned with those,” he notes.

What just happened?

The survey focuses on the current year’s actual and next year’s predicted results in seven categories, including sales revenue, profitability, and hiring plans.

Heading into 2018, an overwhelming 99 percent of local companies expected improved or unchanged performance, including 79 percent that anticipated improvement. Moreover, just 1 percent of respondents expected a worse overall business performance in 2018 than they had in 2017.

Sales revenue for 2018 tied the historic high from 2014, and profitability was very strong, making 2018 one of the best years in the history of the survey. The percentage of companies adding new employees also marked a new historic high, as did the percentage of companies increasing wages.

Jim Hartlieb

“It was an overwhelmingly positive year from the respondents’ perspective,” says Jim Hartlieb, president of First Business Bank in Madison. “We had 75 percent of the respondents report an increase in sales revenue, which was on top of a great year in 2017. In terms of profitability for 2018, 53 percent saw an increase in profitability, which highlights the picture that I see forming here. The demand is there, the business is there, but the biggest challenge that companies are having is finding the labor and the skills to basically produce or execute the service to generate the revenue.”

In Hartlieb’s view, the fact that revenues were up more than profitability means that employers either had to pay more for talent, pay more overtime, pay a recruiter, or pay a temp service. In any case, operating costs were up “just a shade, which muted a little bit of the profitability component,” Hartlieb states. “Having said that, you still had 53 percent that showed an increase in profitability year over year.”

Stronger business confidence was evident in higher capital expenditures, as 86 percent of companies increased or maintained their capital expenditure levels. “If we looked back to 2016 and 2017, the survey would have shown about 30 percent of the respondents were projecting an increase in capital expenditures,” Hartlieb says. “What actually happened in 2018 was that 47 percent, almost half the people, reported an increase, and 39 percent reported the same level. So, between the two you had 86 percent of the companies either meet or exceed their level of capital expenditures from the year before, which tells me they are bullish about the future and they are investing in capital expenditures to prove that.”

Looking good

Moving ahead to 2019, the percentage of companies that project increased sales is slightly higher and, despite a slight decrease in the percentage projecting an increase in profits, profitability projections remain strong. In addition, hiring projections mark yet another historic high, and more than three quarters project wages to increase in 2019.

“We’ve got an even higher number of companies expecting 2019 to be better than 2018,” Hartlieb notes. “Seventy-eight percent expect an increase in revenues, and 15 percent no change, so you’ve got 93 percent of the responding companies thinking it’s going to be at or above, and again that’s coming off of a record year in 2017 and 2016 was very good, as well.

“Profitability-wise, it’s similar to 2018, as about 55 percent expect an improvement in profitability, so it’s slightly higher but not to the same level as the revenue category.”

For employers, the big challenge is there’s also more of the same in terms of pressure on the labor force. About 80 percent of companies are expecting an increase in wages, and 60 percent are projecting an increased number of employees. “So again, it’s that labor force, that pressure on the labor force to be able to meet the demands of their customers that’s going to be a big story that plays out in 2019 and beyond,” says Hartlieb.